[1] As I understand it, the respondent in this appeal brings this motion, filed on February 5, 2002, requesting that the Court reconsider its judgment issued on December 21, 2001, dismissing the appeal with costs. Specifically, it wants not only costs in that appeal but, as it requested in its memorandum of fact and law in the appeal

its costs throughout, including its costs for all prior steps in these proceedings including the hearings before the Tax Court of Canada and the appeals before this Court and the Supreme Court of Canada.

In our judgment we dismissed the appeal "with costs".

[2] The respondent now appears to want the Court to reconsider its judgment of December 21, 2001. The motion purports to be brought under Rule 403 for "directions" that the costs awarded are to include costs in other courts and other proceedings. But what is now being sought is an award of costs which was not made by the Court in its judgment. That is not permitted under Rule 403. Instead, the judgment would have to be rewritten. The only basis upon which this could be done would be Rule 397(1), where it must be shown that either the order does not accord with the reasons or that some matter which should have been dealt with has been overlooked. The present motion establishes neither criteria. There is nothing in the judgment inconsistent with the reasons. Nor is there any basis for saying some matter was overlooked. The Court had before it the respondent's memorandum of fact and law with the special request for costs. It considered that and simply ordered dismissal "with costs" without any exceptional terms. While the respondent now says counsel for the appellant had agreed to a wider award, as far as I can determine from my notes and from the Court record that agreement was never brought to the attention of the Court. Thus it was not "overlooked".

[3] In any event a motion under Rule 397 must be brought within 10 days of the order. Even allowing for the Christmas recess this motion was brought 4 weeks after the time began to run and over 6 weeks after the judgment was actually issued.

primary purpose of a borrowing in a tax-advantageous currency was to raise money

The taxpayer borrowed 216 million in Australian dollars under debentures bearing interest at 16.125% per annum and that had been issued at a 2% premium and then, under a master swap agreement: exchanged the Australian dollar principal amount for Japanese yen at the current spot rate of exchange; swapped the Japanese yen proceeds for Canadian dollars at the current spot rate of exchange; under a series of forward contracts agreed to purchase Australian dollars using Japanese yen on the interest payment date and the principal maturity date; and agreed to exchange Canadian dollar payments for Japanese yen at the relevant future dates. The effect was to convert the proceeds of the debenture issues into Canadian dollars as soon as it received the borrowed funds, and to secure the future delivery of foreign exchange necessary to make the periodic payments of interest and to retire the principal. Sexton J.A. rejected a submission of the Crown that the taxpayer's act of denominating the debentures in Australian dollars was in and of itself a transaction.

Sexton J.A. found that it was not possible to separate the currency of the borrowed funds from the borrowing itself so as to make the denomination of the borrowing a discrete transaction in and of itself, that the extended definition of transaction could not be interpreted to justify taking apart a transaction in order to isolate its business and tax purposes, and that, if the Crown's argument were correct, it could allege that the tax planning component of any transaction amounted to an event or arrangement, constituting a separate transaction. The finding of the Tax Court judge that the primary purpose of the Australian dollar borrowing transaction was for business purposes should not be overridden.

transaction not to be recharacterized until after a determination of abuse

The taxpayer borrowed 216 million in Australian dollars under debentures bearing interest at 16.125% per annum and that had been issued at a 2% premium and then, under a master swap agreement: exchanged the Australian dollar principal amount for Japanese yen at the current spot rate of exchange; swapped the Japanese yen proceeds for Canadian dollars at the current spot rate of exchange; under a series of forward contracts agreed to purchase Australian dollars using Japanese yen on the interest payment date and the principal maturity date; and agreed to exchange Canadian dollar payments for Japanese yen at the relevant future dates. The effect was to convert the proceeds of the debenture issues into Canadian dollars as soon as it received the borrowed funds, and to secure the future delivery of foreign exchange necessary to make the periodic payments of interest and to retire the principal. Sexton J.A. rejected (at para. 23) a submission of the Crown that the taxpayer's act of denominating the debentures in Australian dollars was in and of itself a transaction.

In rejecting a submission that there was an abuse because the borrowing was structured so as to result, in effect, in the deduction of Canadian dollar principal payment (i.e., the high nominal rate of Australian-dollar interest was matched with a capital gain that would be realized on maturity under the forward arrangements), Sexton J.A. indicated that the amounts labelled as interest clearly were interest and (at para. 33):

A recharacterization of a transaction is expressly permitted under section 245, but only after it has been established that there has been an avoidance transaction and that there would otherwise be a misuse or abuse."

The Crown argued that CP's act of denominating the debentures in Australian dollars was in and of itself a transaction and that it amounted to an “arrangement” under the s. 245() definition of "transaction" - and then argued that such "separate transaction", namely the designation of borrowing in Australian dollars, was entered into solely for tax purposes. In rejecting this submission, Sexton JA stated (at paras. 24-26):

…[T]hat extended definition [of transaction] cannot be interpreted to justify taking apart a transaction in order to isolate its business and tax purposes. The necessity to determine primary purpose implies that there is more than one purpose and that the transaction is to be considered as a whole.

…If this argument was correct, the Crown could allege that the tax planning component of any transaction amounted to an event or arrangement constituting a "separate transaction". … In other words, any action taken to obtain a tax benefit would be an avoidance transaction and there would never be an occasion to determine the primary purpose of a transaction. …

The words of the Act require consideration of a transaction in its entirety and it is not open to the Crown artificially to split off various aspects of it in order to create an avoidance transaction. In the present case, the Australian dollar borrowing was one complete transaction and cannot be separated into two transactions by labelling the designation in Australian dollars as a separate transaction.

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